Stewart-Peterson Market Commentary

Closing Commentary - August 14, 2018

Top Farmer Closing Commentary 8-14-18

CORN HIGHLIGHTS: Corn futures finished with gains of 5-1/4 to 6 cents as Dec led today's gains, closing at 3.76-1/2. On Thursday last week, Dec corn closed at 3.83-3/4, which means futures are trading roughly 7 cents below where prices were prior to the USDA report, which added yield. However, carryout barely changed on both old and next year's crop, and therefore, the market may be dismissing the report, anticipating that it is a possibility the yield number was the highest that will be seen this year. Short covering and support from higher beans and wheat gave corn prices a boost, as did a lack of farmer selling. Most farmers have been anxious to sell rallies but not sell into weakness, and it is likely this too will help provide underlying support this week. Crop ratings lost 1% in the good and excellent category, which now rests at 70%. The poor and very poor categories remained unchanged.

SOYBEAN HIGHLIGHTS: Soybean futures pushed higher with solid gains of 9-1/2 to 11 cents. Meal led today's rally, closing with gains of 8.00 or more per ton, while soyoil finished with small losses. News that Argentina would freeze an export duty provided underlying support. Argentina had been gradually reducing export duties, but now there is a freeze in place, this sends a signal that there may be more demand for US soymeal. As a reminder, Argentina had a 20 million metric ton decrease in production this year, and as the world's leading exporter of soymeal, a freeze in duty would suggest more aggressive buying from the US. The weather forecast looks mostly conducive to bean production, as the 6-10 day indicates above normal precipitation chances and below normal temperatures for the entire Midwest. This could bode well for those whose crop needs a drink and do not need searing temperatures. Whether or not there will be enough moisture in areas that are already parched is another question the market has to deal with, and is why we believe, in part, why prices were higher today. The northwest regions of the Midwest, particularly the Dakotas, have been struggling with lack of moisture in recent weeks.

WHEAT HIGHLIGHTS: Wheat futures recovered today, gaining 7-8 in Chi, 5 or more cents KC, and 3 to 3-1/2 cents in Mpls. Today's recovery was in part due to the last two sessions, which had sharp losses and was primarily on long liquidation, as funds remain aggressively on the buy side of wheat due to declining world inventories. Exportable wheat producing countries have experienced downgrades in their crop this year, and consequently, the projected world ending stocks divided by usage of exporting countries is one of the lowest in history. That being said, in theory the world still has ample inventory, so the recent turnaround in prices of near 50 cents from the recent highs just two weeks ago suggests just how volatility is creeping into the marketplace. The wheat has been a very active contract this year, with Dec Chi peaking on 5/29 at 5.88 to then drop down to its low on 7/12 at 4.91, only to rally to new highs of 6.13 by 8/2.

CATTLE HIGHLIGHTS: Cattle futures found buying interest today after holding some technical support early in the morning to end the day with moderately positive closes. The nearby Aug live cattle contract closed 77 cents higher to 107.97, Oct closed 57 cents higher to 108.72 and Dec closed 42 cents higher to 112.42. Nearby feeders were also higher, with Aug up 27 cents to 148.92 and Sep up 22 cents to 148.67. Choice beef values had an impressive finish yesterday, closing 1.82 higher to 208.43. This is their highest value since 7/3. Choice beef was up another 1.12 at midsession today to 209.55, continuing the bounce. Cash bids have not been published for this week, but markets should get an idea where cash trade may be headed during tomorrow's fed cattle exchange online auction. Traders are still trying to digest last Friday's USDA report and what it will mean for futures prices. Quarter 3 beef production was dropped from the July report, but quarter 4 production was increased. The ending result was that the USDA is expecting an increase in beef production of 225 million pounds versus just 115 million pounds in July. Considering the normal trend is for beef production to drop between 150 and 300 million pounds, this increase in expected production is very bearish. Today's positive closes on the live cattle contracts were impressive. The Oct contract held its 100-day moving average all day and finished just below its 50-day moving average resistance level. There is a fairly significant upward trend line begun 5/17 that was held today as well. Feeder cattle futures held their recent lows and continued consolidating.

LEAN HOG HIGHLIGHTS: Hog futures closed moderately higher today, failing to close near the highs of the day for the third session in a row. Aug futures went off the board today, 52 cents lower to 55.00. Oct closed 20 cents higher to 51.85, and Dec closed 7 cents higher to 48.65. Carcass cutout values put in their lowest close yesterday since 5/4, down 6 cents to 71.01. Cutouts were down another 74 cents today to 70.27. The CME lean hog index was down 1.76 to 58.28. The nearby low for the index was set in April at 52.97. So far this week, hog futures have respected their lows set last week, made in bullish key reversals, but three consecutive closes well off the highs will not be able to do much to draw technical buying interest. The Oct contract has put in two consecutive inside sessions in a row, as futures consolidate just above their 20-day moving average level. Momentum studies are pointing higher, but given the lack of positive fundamentals, heavy hog and pork supply should keep hog markets from making any real recovery rallies in the near term.

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